The softwood lumber dispute is a good illustration of the operation of the Canada-U.S. Free Trade Agreement (FTA)(1) dispute settlement mechanism in antidumping and countervailing duty cases. It is the longest-running trade dispute between the United States and Canada, having lasted eleven years and gone through three distinct stages. Canada's experience with U.S. trade laws during the dispute had a profound effect on the negotiation of the FTA, resulting in the adoption of an original system of dispute settlement.
The recent Softwood Lumber III extraordinary challenge committee (ECC) report,(2) which reviewed the U.S. Department of Commerce International Trade Agency's finding of subsidy, provides an opportunity to analyze the performance of the binational panel system, particularly the extraordinary challenge committee procedure. This is the third extraordinary challenge committee that has been convened,(3) but Softwood Lumber III is the first dispute in which both the binational panel and the extraordinary challenge committee divided along national lines. It is also the first in which serious allegations of an appearance of bias were levied against two of the Canadian members of the binational panel.
The first two extraordinary challenge committees and the Canadian majority in Softwood Lumher III defined a narrow role for the ECC based upon a standard of review that limited the ECC to determining whether the binational "panel conscientiously attempted to apply the appropriate law as they understood it."(4) The ECC was not required to determine whether the panel applied the relevant law correctly.(5) The issue expressly left open by the first two challenges was whether an error of law alone is sufficient to constitute a material threat to the integrity of the binational panel process as required by the standard of review provision of the Free Trade Agreement.(6) The Softwood Lumher III challenge raised the same issue, as the United States Trade Representative (USTR) and the Coalition for Fair Lumber Imports (Coalition) asserted that the binational panel so misconstrued U.S. law that the integrity of the process was threatened.
The Canadian majority on the committee held that the narrow threshold had not been met.(7) The U.S. dissent by Judge Malcolm Wilkey, a former Chief judge of the Court of Appeals for the D.C. Circuit, contains a strongly worded condemnation of the Softwood Lumber III binational panel and extraordinary challenge committee majority determinations, as well as the entire binational panel mechanism.
I submit that the well intentioned system of Extraordinary
Challenge Committees, as a substitute for the standard appellate
review under United States law, has failed. It has failed both
at the Panel and the Committee levels to apply United States
law, substantively, and most clearly in regard to the United
States standard of review of administrative agency actions. The
system runs the risk, not only of producing egregiously erroneous
results as in the instant three to two panel decision, but also
of creating a body of law--even though formally without precedential
value--which will be divergent from United States law
applied to countries not members of NAFTA.(8)
Judge Wilkey's dissenting opinion raises a number of issues, the most important of which is the degree of deference that should be paid by the reviewing panel to the administrative agencies. He argues that virtually absolute deference must be given, unless there has been a "totally irrational" exercise of discretion. If Judge Wilkey is correct, this raises the question of whether there is any need for a binational panel mechanism.
In the chapter of the Free Trade Agreement that addresses binational panel dispute settlement in antidumping and countervailing duty cases, the standard of review to be …